Protecting Your Right to Payment on a Texas Construction Project

Payment disputes are an ever-present risk in the construction industry, arising from the complexity of projects, the number of parties involved and tight schedules. Under Texas lien law, general contractors, subcontractors, suppliers and certain architects or engineers who follow the strict statutory procedures can secure their right to payment and protect their bottom line.

The core tool for securing payment on a Texas project is a mechanic’s lien. This lien attaches directly to the property improved by the claimant’s labor or materials and can ultimately lead to foreclosure if payment is not received. The lien’s primary purpose is to ensure that those who contribute to a construction project have a meaningful way to secure their payment. 

Of all the steps required to perfect a lien, the monthly notice requirements are the most exacting. Subcontractors and suppliers must send written notices to preserve their lien rights:

• First-tier subcontractors (those hired directly by the general contractor) generally have until the 15th day of the third month. 
• Second-tier subcontractors and suppliers (those hired by a subcontractor) must send notice by the 15th day of the second month following each month they supply unpaid labor or materials. 

Missing even a single notice deadline almost always destroys your lien claim. Written notices must be sent to the right parties (the owner and original contractor) and include precise statutory language.

Once timely monthly notices have been sent, the next step is filing the lien affidavit. It must generally be filed by the 15th day of the third month after the last month in which work was performed or materials were delivered. (There are different rules for residential projects, which also require earlier notices to the owner.) The lien affidavit must contain specific details, such as a description of the work, the amount owed and identification of the parties. To enforce the lien through the courts, a lawsuit must be filed within one year (or sometimes two) after filing the affidavit, depending on the circumstances.

Another key payment safeguard is statutory retainage: a portion of the contract price withheld to ensure project completion. Texas law not only regulates retainage but also imposes special notice requirements if you need to claim against these funds. The deadlines for giving notice of retainage claims generally track those for general lien rights.

Despite these protections, payment rights can be undermined by common mistakes, such as missing notice deadlines, sending notices to the wrong parties, losing track of the last day of work, relying on handshake deals and incorrectly believing that lien rights are erased by “pay-if-paid” contract clauses that make a subcontractor’s right to payment conditional on the general contractor first receiving payment from the owner. Awareness and vigilance are essential to avoid these pitfalls.

Taking a proactive approach is the best way to safeguard your interests. An experienced construction litigation attorney can help you prepare accurate notices and affidavits and adhere to deadlines. Once you’ve missed a notice or filing deadline, your options shrink dramatically. 

The Law Firm of Richard L. Ellison, P.C. in Kerrville represents Texas clients in construction law disputes.. To schedule a consultation, call my firm at 830-955-8168 or contact me online.